Tuesday, October 14, 2003
Monday, October 13, 2003
Buy Out Deal
The company sent me a written offer to buy out a "long service plan."
The company had a long-standing offer to employees hired before 1982 and over age 55 to pay them 10 extra weeks of salary when they retire or voluntarily terminate. On Saturday, they sent an offer to buy out this plan. Actually, for me it will be a good deal, because I was planning to tap into my IRA this quarter to pay off some up-coming credit card bills (mostly for vacation trips). The amount is right to avoid tapping the IRA again this year.
The deal offers an immediate cash payout, with tax consequences, or a payout into a deferred savings plan (401K), with different tax consequences. The bad part of the deal is that the payout amount is discounted 9% per year from assumed retirement date. This has no impact on me, since I will be retiring in less than 6 months from now, but is a real rip-off for later retirees. The company claims that the 9% is their weighted average cost of capital. They are ignoring the fact that recent risk free investments pull in about 1%.
There is also a club involved. The offer states several times, some of them in bold-red letters, that the company can change or drop the underlying plan at any time. With these guys that means they WILL drop the plan in the very near future.
I will select the immediate cash payout. I need the money now. I have already max'ed out on FICA, so I avoid a 6% payout there. I avoid the 10% penalty on a withdrawl from the IRA. My tax rate in the future will be no worse than my current rate. So I will take the deal.
The company had a long-standing offer to employees hired before 1982 and over age 55 to pay them 10 extra weeks of salary when they retire or voluntarily terminate. On Saturday, they sent an offer to buy out this plan. Actually, for me it will be a good deal, because I was planning to tap into my IRA this quarter to pay off some up-coming credit card bills (mostly for vacation trips). The amount is right to avoid tapping the IRA again this year.
The deal offers an immediate cash payout, with tax consequences, or a payout into a deferred savings plan (401K), with different tax consequences. The bad part of the deal is that the payout amount is discounted 9% per year from assumed retirement date. This has no impact on me, since I will be retiring in less than 6 months from now, but is a real rip-off for later retirees. The company claims that the 9% is their weighted average cost of capital. They are ignoring the fact that recent risk free investments pull in about 1%.
There is also a club involved. The offer states several times, some of them in bold-red letters, that the company can change or drop the underlying plan at any time. With these guys that means they WILL drop the plan in the very near future.
I will select the immediate cash payout. I need the money now. I have already max'ed out on FICA, so I avoid a 6% payout there. I avoid the 10% penalty on a withdrawl from the IRA. My tax rate in the future will be no worse than my current rate. So I will take the deal.
Wednesday, October 08, 2003
The Word is Out!
Well, the word is out that I am retiring. Based on detailed (day-by-day) calculations, I have 85 working days left. That means that the last work day will be the end of February and I will take vacation the month of March. Retirement is April 1st.
Evidently my retirement has been a subject in several higher level staff meetings. Mainly because they have already posted my job...two grade levels below mine and for about 1/2 the salary. Ha!
Evidently my retirement has been a subject in several higher level staff meetings. Mainly because they have already posted my job...two grade levels below mine and for about 1/2 the salary. Ha!
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